3.2.2 Mergers and Takeovers

Theme 3 Business ( paper 2)

Tactical reasons

Reasons for mergers and takeovers that include increasing market share, reducing competition, accessing technology, accessing staff, acquiring specialists, and accessing intellectual property.

Strategic reasons

Reasons for mergers and takeovers that include accessing new markets, domestic businesses joining foreign businesses, improved distribution networks, and improved brands.

Merger

When two businesses agree to join forces in order to make a third company.

Takeover

When one business buys more than 50% of another business's shares.

Horizontal integration

When a business joins another business in the same stage of production as them.

Vertical forwards integration

When a business joins another business that is a stage further forward in production than them.

Vertical backwards integration

When a business joins another business that is a stage further back in production than them.

Financial risks

Original purchase cost and costs of adjusting the new business.

Financial rewards

Immediate increased revenue and economies of scales leading to lower costs.

Problems of rapid growth

Diseconomies of scale.